Of the ~9.5GW of derated capacity that entered this year's auction, ~7.6GW secured contracts against a target of ~7.7GW. In the first seven rounds, less than 300MW of capacity exited. In the eighth round, however, the Sutton Bridge and Severn power stations, the two largest units in the auction, both exited, resulting in their collective ~1.5GW of capacity leaving the auction and causing it to clear.
The auction cleared at a price of £35.79/kW/year, improving the financial prospects of many new-build assets as well as continuing the lifespan of some units that were at risk of retirement.
The Capacity Market is a mechanism introduced by the UK Government to ensure that electricity supply continues to meet demand as more volatile and unpredictable renewable generation plants come on stream. In the T-1 auction, potential Capacity Market participants can bid for contracts in auctions held one year ahead of the delivery date.
During the delivery year, capacity providers will receive monthly payments for their agreed obligation at the auction clearing price. Providers are expected to be available to respond with their agreed generation volumes or load reductions when called on by National Grid Electricity System Operator at times of system stress.
The auctions follow a descending clock format, starting with offers of £75/kW/year and gradually reducing by £5/kW/year decrements in each round. Participants specifying the price at which they would exit the auction, until the minimum price is reached, at which the supply of capacity offered by bidders is equal to the volume required. As the price descends, the target capacity increases.